The future of cross-border disputes without the Lugano Convention

The EU Commission’s opposition of Britain’s application to join the Lugano Convention is causing ripples of pessimism to be felt both in the legal sector and by those with an eye on the UK economy.

In this article, Dispute Resolution partner Patrick Selley explains the impact this may have on cross-border disputes and the enforcement of judgments.

Brexit

Following Brexit on 31 December 2020, the UK was no longer party to the EU regulatory regime to deal with jurisdictional matters involving disputes between member states, and most significantly, the cross-border enforcement of judgments.

Accession by the UK in its own right, (rather than as had previously been the case, as a member of the EU) to the Lugano Convention would have largely mitigated these consequences. The reason given by the EU Commission for opposing the UK’s membership is that Lugano membership is a “flanking measure” of the Single Market, and it is not an appropriate framework for judicial decisions with any third countries. As the UK is now classed as a third country, it no longer has the necessary link to justify readmission to the Convention.

As a result, this has the potential to significantly impact the UK’s legal sector, with fears arising that it could undermine London as the global capital for international dispute resolution. According to the Law Society, legal services added nearly £60 billion to the UK economy in 2018.

Consequences

Many commentators focus on the difficulties this poses to businesses operating across the EU that face risks of parallel litigation in order to enforce in one EU state judgments obtained in another.
However, there are ways around this issue, including agreeing contractual exclusive jurisdiction clauses in order to take advantage of the 2005 Hague Convention on Choice of Court Agreements, or agreeing to resolve disputes by arbitration where arbitration awards are internationally enforceable pursuant to the 1958 New York Convention.

Nonetheless, it is true that these measures are more likely to be available to businesses than to individuals. For instance, Sarah Garvey, chair of the Law Society’s Private International Law Committee, argues that not being able to enforce judgments in the EU could severely harm those seeking legal recourse as consumers or in family disputes.

The Financial Times recently reported the difficulties this situation causes at the level of the individual. The article points to the uncertainty this creates for parties in the already distressing situation of a family breakup and points in particular to the lack of certainty in enforcing sometimes vital maintenance orders in different states. Catherine McGuinness, policy chair at the City of London Corporation, also thinks that the biggest losers will be individuals seeking justice as consumers or in their personal lives: “It’s the person who’s buying something across borders or considering how to divorce their partner across borders who’s going to find that they don’t have access to this really pragmatic route to clarify their legal situation.”

Whilst it appears its motivation for rejecting Britain’s application to join the Lugano Convention is to withhold favour from the UK, the Commission should bear in mind that its decision doesn’t just negatively affect the UK, but EU nationals too.

However, the UK legal system has a global reputation for integrity, fairness and efficiency. It also uses the English language. To develop another EU court system capable of efficiently handling a dispute (for example, between an Italian company and a Spanish consumer who do not speak the same language and who are regulated by two distinct commercial codes in their respective countries) is potentially a very long process.

The 2019 Hague Convention on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters is in the pipeline and would establish an international framework for the recognition and enforcement of judgments. However, the ratification process will inevitably take time. By way of example, the 2005 Hague Convention took 10 years to come into force.

Ultimately, the decision on whether the UK can access the Lugano Convention will be made by the Council of the EU, the decision-makers of the member states. Meanwhile there are no real winners here and businesses and individuals, both in the UK and EU, are likely to have to suffer the consequences.